The British Banking School was a group of 19th century economists from the United Kingdom who wrote on

monetary Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are ...

and banking issues. The school arose in opposition to the British Currency School; they argued that currency issue could be naturally restricted by the desire of bank depositors to redeem their notes for gold. According to Jacob Viner the main members of the Banking School were Thomas Tooke,

John Fullarton John Fullarton (c.1645 – 1727), of Greenhall, Argyll, was a Scottish clergyman and nonjurant Episcopal Bishop of Edinburgh between 1720 and 1727. Origins Fullarton was the son of James McCloy, alias Fullarton, of Ballochindryan and Jean Ste ...

, James Wilson, and J. W. Gilbart. They believed "The amount of paper notes in circulation was adequately controlled by the ordinary processes of competitive banking, and if the requirement of convertibility was maintained, could not exceed the needs of business for any appreciable length of time". Thus they opposed the requirement in the Bank Act of 1844 for a reserve requirement on banknotes.

Creation of Banking School versus Currency School

During the early and mid 19th century Britain had been plagued economically due to the conversion of currency from gold to a paper currency. This switch to inconvertible currency spiraled Britain's economy into a financial crisis. Throughout this period of time two financial groups were formed, these groups were known as the British Banking School and the British Currency School.

Economic beliefs

The British Banking school opposed the views carried by the British Currency School on notes and deposits. There were two main arguments presented by the British Banking School. One being, that both notes and deposits perform the same economic function. Secondly, they argued that no restrictions should be placed on either notes or deposits except for the convertibility to coin form. They believe no restrictions should be made because, "money is seen as a means of exchange which is spontaneously—or market-endogenously, as it is called—created among traders." The banking position was summed up perfectly by Viner when he stated, "The amount of paper notes in circulation sadequately controlled by the ordinary processes of competitive banking, and if the requirement of convertibility was maintained, could not exceed the needs of business for any appreciable length of time" (Viner 1937, p. 223). Meaning, the demand of credit in business relies heavily on banking policy and their interest rates.

Peel's Act reaction

In 1844, the

Bank Charter Act The Bank Charter Act 1844 (7 & 8 Vict. c. 32), sometimes referred to as the Peel Banking Act of 1844, was an Act of the Parliament of the United Kingdom, passed under the government of Robert Peel, which restricted the powers of British banks ...

, also known as the Peel's act, was passed. This act was initially a loss for the British Banking School because it split the bank into two branches, a branch for the notes and a branch for the deposits. "The act imposed what was essentially a 100-percent reserve requirement onto the note-issuing department." However, in 1847 severe economic panics resulted from the Peel's Act, causing the 100 percent reserve requirement to be suspended to keep the banks afloat. Nonetheless, this crisis in 1847 validated many of the Banking School's beliefs such as money should not be restricted but naturally run. The Peel's act resulted in multiple victories. As Mises states, "Although the Currency School enjoyed the ''de jure'' success, ''de facto'' victory went to the Banking School."

References

{{reflist Schools of economic thought Banking in the United Kingdom Economic history of the United Kingdom Monetary economics